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COPY X-6854 • u ty - FEDERAL RESERVE BANK OF ST. LOUIS - April 1, 1931. Mr. Walter Wyatt, General Counsel, Federal Reserve Board, Washington, D. C. Dear Mr. Wyatt: FEDERAL RESERVE SANK OF ST. LOUIS vs. RAY D. KEITH. Benton County National Bank, B e n t o n v i l l e , Ark. matter. I was in t h e midst of the h e a r i n g on the pleadings in t h i s case when Mr. Gilmore telephoned the contents of your telegram. Immediately a f t e r i t s r e c e i p t , and, b e f o r e any hearing of testimony (and over our o b j e c t i o n ) the case was by the Court continued u n t i l September. The f a c t s out of which t h i s s u i t arose may be summed up as follows; On November 14, 1630 the Federal Reserve Bank of S t . Louis h e l d the Benton County National Sank of B e n t o n v i l l e , Ark. 15 day n o t e , dated November 6, 1930 f o r $39,550.90 secured by e l i g i b l e paper aggregating $44,580.90 On t h a t d a t e , the Benton County National Bank forwarded to the Fede r a l Reserve Bank $24,141.65 worth of a d d i t i o n a l c o l l a t e r a l and i t s ' 15 day n o t e , of t h a t d a t e , executed in blank, and, r e q u e s t e d the Federal Reserve Bank to f i l l in the amount i t would be w i l l i n g to loan on the combined secure i t i e s , i . e . on t h e $63,722.56 worth, and, r e q u e s t e d i t to cancel and r e t u r n the November 5, 1930 n o t e . The Reserve Bank f i l l e d in t h e new n o t e f o r $55,000., being the aggregate of the o l d note f o r $39,550.90 and the new advance of $25,449.10 The KEITH n o t e sued on was included in the new c o l l a t e r a l sent in with the $55,000. n o t e , and, on t h e s t r e n g t h of which the $25,449.10 a d d i t i o n a l amount was advanced. The $65,000. n o t e was taken up a t i t s due d a t e , fend, a new n o t e taken f o r an a d d i t i o n a l amount and a d d i t i o n a l c o l l a t e r a l accompanied the new note. The Benton County National Bank closed i t s doors on the 5th of December, 1930, and, b e f o r e i t had p a i d o f f i t s 15 day n o t e . At the time the Benton County National Bank closed, Mr. Keith had with i t a deposit of $65. or $75; h i s mother a l i k e d e p o s i t ; and, the 399 X-6854 Mr. Wyatt 2 , p a r t n e r s h i p grocery s t o r e - o f which Keith was a p a r t n e r - a l a r g e r amount. Upon advice of h i s counsel ( a former p a r t n e r of the C i r c u i t Judge) Mr. Keith r e f u s e d to nay the n o t e u n t i l he had received c r e d i t f o r t h e s e d e p o s i t s . Suit was f i l e d by a l o c a l Attorney who i s also the Attorney f o r the Receiver. The P e t i t i o n a l l e g i n g t h a t the n o t e had been endorsed, assigned and d e l i v e r e d to the Federal Reserve Bank, f o r value and "before m a t u r i t y , and, t h a t the Federal Reserve Bank was a holder in due course. The ANSWER a l l e g e d t h a t the Benton County n a t i o n a l Bank was i n s o l v e n t a t t h e time t h e t r a n s f e r was made and t h a t t h e t r a n s f e r was VOID under Section 5242 of t h e NATIONAL BANK ACT. , A DEMURRER was f i l e d to the ANSWER and overruled; t h e Court expressing the view t h a t t h e Benton County National Bank was i n s o l v e n t when the note was t r a n s f e r r e d , and, consequently,. the t r a n s f e r was void. We endeavored to convince t h e Court t h a t the Reserve Bank had a c t u a l l y advanced more to the Benton County National Bank on the day the KEITH n o t e was taken as c o l l a t e r a l than the f a c e of the c o l l a t e r a l o f f e r e d on t h a t day, i n cluding the KEITH n o t e ; consequently, the t r a n s a c t i o n could not v i o l a t e the p r o v i s i o n s of Section 5242 of t h e National Bank Act, even though the bank were l a t e r found to have been i n s o l v e n t on the date of t r a n s f e r . He intimated t h a t u n l e s s we amended t h e PETITION to show t h a t we h e l d i t as c o l l a t e r a l the PETITION would be s t r i c k e n from the r e c o r d s . Being s a t i s f i e d t h a t we were a holder for value even i f the n o t e had been taken as c o l l a t e r a l , we amended the P e t i t i o n in accordance with h i s suggestions. Mr. K e i t h ' s Attorney then procured a Court order d i r e c t i n g t h e Rec e i v e r of the Benton County National Bank to b r i n g the l e d g e r and Statement of Condition of t h e bank to t h e Court. The Receiver t o l d t h e Court t h a t h i s i n s t r u c t i o n s were not to allow such information to be given out without , a u t h o r i t y had been f i r s t obtained from the Comptroller and t h a t he would t e l e g r a p h t h e Comptroller. D e f e n d a n t ' s Attorney then asked f o r a continuance on t h e ground t h a t he had been prevented from producing h i s evidence. At t h a t time, however, the Court took the m a t t e r out of the defense A t t o r n e y ' s hands and suggested "you do not want a continuance on t h i s ground but r a t h e r on the ground t h a t t h e r e has been an amendment to the Complaint - so t h a t you a r e unable to proceed a t t h i s time - " and, upon t h i s , continued the case to September. Defense Counsel suggested in open Court t h a t he would f i l e a Counter claim f o r the excess c o l l a t e r a l we h e l d . I am s a t i s f i e d t h e r e i s no merit in e i t h e r defense; n e v e r t h e l e s s , when t h e case comes to t r i a l the Court w i l l do a l l he can a g a i n s t u s , and, I am c o n f i d e n t the J u r y w i l l f i n d a g a i n s t us; I am equally c o n f i d e n t , however, t h a t the evidence w i l l e n t i t l e us to an i n s t r u c t e d v e r d i c t , and, i f not given by the T r i a l Court t h e Supreme Court %'ill give i t . if Mr Tyatt ^ 31Ok, M X-6854 3 I do not b e l i e v e t h e defense i s in good f a i t h , but only f o r the purpose of holding o f f t h e s e s u i t s with the hope t h a t the Reserve Bank w i l l be paid o f f and some of t h e s e n o t e s r e t u r n e d to the Receiver so t h a t s e t - o f f s w i l l apply. I do not b e l i e v e i t involves the ATTM03E and/or the LUCAS questions; n e i t h e r do I b e l i e v e a t t h i s time i t has reached System importance. If t h e t h r e a t e n e d c o u n t e r - c l a i m i s f i l e d , then i t may * - - - r a i s e a question of System importance. As soon a s I can get them w i l l send you copy of o r i g i n a l P e t i t i o n , Answer, and Amended P e t i t i o n , and, as soon as we r e c e i v e Answer to t h e Amended P e t i t i o n w i l l send you a copy, and keep you poste d a s to t h e s e v e r a l s t e p s . question. How I would l i k e to be a b l e to get i n t o t h e Federal Court on t h i s With k i n d e s t r e g a r d s . Very t r u l y yours, (Signed) J a s G. Mc Conkey J as G-. Mc Conkey, Counsel P l e a s e r e t u r n c l i p p i n g s when f i n i s h e d with them. 401 X-6854-a From Record |3md Democrat, Bentonville, Ark. : — — : — - — Thursday» March 19, 1931. ECHO OF BANK FAILURE BROUGHT UP BY, SUIT Depositors Of Local Bank ? i l l Watch Outcome Of This Case With I n t e r e s t One of the most important cases to he t r i e d at t h e p r e s e n t term of c i r c u i t court i s t h e case of The Federal Bank of St. Louis versus Bay D. Keith; t h i s i s a s u i t on a promissory note made by the defendant to t h e Benton County National Bank a t B e n t o n v i l l e and which note was a l l e g e d to have "been sold and t r a n s f e r r e d by the Benton County National Bank to t h e Federal Reserve Bank of St. Louis on November 15, 1950. Keith acknowledges the execution of the note in question and t h a t i t i s now due and remains unpaid; and Keith by h i s a t t o r n e y , S a r i B l a n s e t t s e t s up a special defense to the payment of the note in question; by a l l e g i n g in h i s answer t h a t a t the time of the t r a n s f e r of the note by the Benton County Nationa l Bank to the Federal Reserve Bank at St. Louis, t h a t the Benton County National Bank was insolvent or in a f a i l i n g condition and was done with a view of making a p r e f e r r e d c r e d i t o r out of the Federal Reserve Bank and thereby p r e venting a d i s t r i b u t i o n of the a s s e t s of the Benton County National Bank, r a t e a b l y among i t s c r e d i t o r s . Attorney Vol T. t i n d s e y f i l e d a demurrer to the answer and the court heard the argument by the a t t o r n e y s on t h i s the 17th. Mr. B l a n s e t t defended h i s answer and s t a t e d i f the demurrer was overruled by the court as i t should be, then he, B l a n s e t t would undertake to prove to the j u r y t h a t the bank was insolvent a t t h e time of the t r a n s f e r and t h a t the s a l e or attempted s a l e and t r a n s f e r was void under the Federal s t a t u t e s . B l a n s e t t s t a t e s t h a t i f h i s c l i e n t Keith p r e v a i l s in t h i s case t h a t i t w i l l f o r c e more than one hundred thousand d o l l a r s back into the Benton County National Bank as i t s a s s e t s , to be d i s t r i b u t e d among the d e p o s i t o r s of the Benton County National i n s t e a d of remaining in the hands of the Federal Reserve Bank. The court overruled the demurrer of the p l a i n t i f f —Federal Reserve Bank, and w i l l permit t h e defendant Keith, and h i s a t t o r n e y , Earl B l a n s e t t , to be heard by the j u r y . No doubt t h i s case w i l l bo the c o n t r o l l i n g f a c t i o n in considerable f u t u r e l i t i g a t i o n and i s looked forward to with much i n t e r e s t . The case i s set f o r t r i a l on Wednesday,. &arch 25th a t 10 o ' c l o c k a. m. This i s a pioneer case of i t s kind and but few lawyers are f a m i l i a r with t h e s p e c i a l procedure t h a t w i l l be followed by the defense. ; 4 0 2 X-6854-a - 2 Mr. Keith w i l l pay t M s n o t e "out h i s a t t o r n e y says t h a t he wants i t paid to the proper p a r t i e s or the proper 'bank and. not to the wrong bank. He s t a t e s f u r t h e r t h a t i t should "be p a i d to t h e r e c e i v e r of the Benton County National Bank and not to the Federal 3 r s e r v e 3ank. X-5854-b From Th£ Rdgers (Ark.) Daily News. Friday, March 20, 1931. SUIT MAY HAVE WIDS EFFECT OH BAH SITUATION Keith Contends S t . Louis Bank Was Made P r e f e r r e d Creditor TO TRIAL MARCH 25 Favorable Verdict Would Mean Return of Large Block of Assets A s u i t brought by the Federal Reserve bank of St. Louis a g a i n s t Hay D. Keith and scheduled f o r t r i a l a t the present term of c i r c u i t court, i s being watched with i n t e r e s t , f o r the outcome may have a widespread e f f e c t upon l i q u i d a t i o n of closed banks in the county. In i t s s u i t the Federal Reserve bank seeks to c o l l e c t upon a promisory note made by Keith to the defunct Benton County National bank, which note was a l l e g e d to have been sold and t r a n s f e r r e d to the St. Louis bank on Nov. 15, 1930, about 21 days before the Benton County National bank suspended business. Keith acknowledges execution of the note in question and t h a t i t i s now due and remains unpaid, and through h i s a t t o r n e y , Earl B l a n s e t t , he a l l e g e s t h a t a t the time of the t r a n s f e r the Benton county bank was insolvent or in a f a i l i n g condition and t h a t the t r a n s f e r was made with a view to making the Federal Reserve bank a p r e f e r r e d c r e d i t o r and thereby preventing d i s t r i b u t i o n of the a s s e t s of the Benton County National bank pro r a t a among i t s c r e d i t o r s . Attorneys f o r the S$. Louis bank f i l e d a demurrer, which was overruled by Judge Combs, and the case f i l l come up f o r a j u r y t r i a l . A decision in favor of the defendant, Mr. Blansett s a i d , would mean the r e t u r n of more than $100,000 in a s s e t s , now h e l d by other banks, to the Benton County National bank f o r d i s t r i b u t i o n . The case i s expected to be a deciding f a c t o r in other l i t i g a t i o n growing out of l i q u i d a t i o n of the Bentonville bank, with a p o s s i b i l i t y of the same s i t u a t i o n extending to the Rogers bank. The case has been scheduled f o r t r i a l Tednesday, March 25, beginning at 10 a. m.
@FedFRASER